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Depreciation calculation in case of succession

anuj (auditor) (154 Points)

16 September 2013

Respected members

Prop of one business died on 29/01/2013 and his son becomes prop. as on 30/01/2013. Audit case applicable.

Depreciation to be calculate as if no succession taken place and apportioned in no. of days between predecessor and successor.

My question is
1) how to show depreciation calculation in both ITR-4 as there is no provision in ITR-4 utility to calculate depreciation on basis of no. of days. it calculates only based on less or more then 180 days.

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17 Replies

CA. Kunal Lakhotia (ACA) (1006 Points)
Replied 16 September 2013

u shall file two ITRs for both deceased & successor..for deceased u shall fill in pening balance & additions for more than 180 days but in case of successor u shall not fill anythng under opening, u will only put in details in period less than 180 days. Sale whole assets under deceased

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CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 16 September 2013

Dear Kunal sir,

but in the sec. 32 it is prescribed that the total dep. must not exceed the amount of dep. that you were otherwise allowed to claim... but i think in the case you just mentioned, A will get 100% dep. on that asset and then, B will also get 50% dep. (being less than 180 days).... is it right in the view of section??? i don't think so...

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anuj (auditor) (154 Points)
Replied 16 September 2013

Dear Kunal ji... thanks for reply. I also think to apply this rule. but as lovely ji said that depreciation will be 150 % for single asset in a year. I am confused how to come out from this situation

anuj (auditor) (154 Points)
Replied 16 September 2013

Lovely ji,,, can u provide any other solution then that.

CA. Kunal Lakhotia (ACA) (1006 Points)
Replied 16 September 2013

Hey u guys didnt understand..Deceased will sale it to successor..suppose an asset wid WDV 100 is sold fr 100 den asset value is zero, now u will sale it after 180 days are over (put sale value in that column of the schedule in ITR), so successor wil get adequate dep & similarily, successor will add after 180 days & get balance depreciation

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anuj (auditor) (154 Points)
Replied 16 September 2013

Kunal ji.. you mean 1) in books of predecessor as on 01/04/2012 Rs.100/- depreciation claimed Rs. 15/- asset sold as on 29/01/2013 Rs. 85/- 1) in books of successor as on 30/01/2013 Rs.85/- depreciation claimed Rs. 6.38/- wdv of assets as on 31/03/2013 Rs. 78.62/-

CA. Kunal Lakhotia (ACA) (1006 Points)
Replied 16 September 2013

ya sort of, as der is no other option available under the ITR

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 16 September 2013

Dear Kunal sirji,

in that case, the problem is same as we had 2-3 hours ago... that is A & B both are charging depreciation of Rs. 21 (combined) on the asset on which you are entitled to clam only 15% depreciation... sirji, try to understand.. this is not the solution... sorry, if you take it otherwise...

and anuj sir, i am trying to get the answer... but as you also know, it's the busy time... so, there might be little delay in solution... but trying my best...

thanks in advance... and sorry kunal sirji again.. but this will not work here.. sorry... as said by mr. anuj sir, that A will get 15 Rs. Dep. and B will get Rs. 6 as Dep. which is not right.. combining both, the dep. must not exceed Rs. 15.

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CA. Kunal Lakhotia (ACA) (1006 Points)
Replied 16 September 2013

Ya lovely you r right, but in the ITR I dont c any oder option..if u gt 1 ..then do post

anuj (auditor) (154 Points)
Replied 16 September 2013

Agree with Lovely ji but also not find any other option as said by Mr Kunal . Kunal ji if case is same then there no need to show sale as business transferred by will so can be shown as gift and carried over by successor as it is. Lovely ji thanks in advance. waiting for your solution agreeing the provisions of law.

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CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 17 September 2013

Dear Anuj sir and kunal sir,

first of all sorry.... there was some mis-understanding on my part yesterday.. i was thinking/applying all provisions of sec. 170... thinking that the query is in regards to "succession in case other than death"... which was not right... as u asked query pertaining to death of predecessor... sorry again..

and as said by mr. kunal in his first comment (though he also mis-understood later on)... that the dep. is charged by predecessor/deceased for the whole year and then, his successor will claim dep. for the remain. part of the year... was right... in other words, combining both the dep. claimants, the depreciation amount will be 100% dep. (in aggregate) because u/s 32 it was prescribed for sec. 170 only that it will be allocated on the basis of no. of days between both... but this is not the case of sec. 170...
now, i also think that Mr. A will transfer/sale the asset... and no need to show it as gift.. as it is succession and its transfer by will... so, exempt u/s 47... by the amount of any capital gains arises... and Mr. B will show the amount of asset acquired as that of the previous owner u/s 49(1)... e.g. Mr. A acquired it on Rs. 50000... and t/f on will... thus, Mr. B will also show it at Rs. 50000 (irrespective of the FMV/the amount of will etc...)

Thus, dep. for Mr. A would be Nil.. as he has entered the sale amount (acc. to will) in the column "consideration or other realization during the p.y. out of 3 or 4".... and Mr. B will claim Dep. accordingly, i.e. 50% or 100% depending upon the date of will/transfer of the asset legally...

Best Regards,
CA Lovely Arora
ca.lovelyarora @ gmail.com

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anuj (auditor) (154 Points)
Replied 17 September 2013

Dear kunal ji..thanks for detailed analysis...i agree with the points give. But u said dep. will be nil in case of mr. A. But when i will enter sale amount in consideration column after 180 days..it will calculate dep for whole year so it will not be nil ..may be i again mis understood....can u please clarify with an example ....

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 17 September 2013

Dear Anuj sir,

you are required to enter sale amount at column 5.... not at 8... as it says "consideration or other realizations during the year OUT OF 3 or 4"... and as it is OUT of previous year's asset/opening balance.. thus, enter amount there..

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anuj (auditor) (154 Points)
Replied 17 September 2013

Thanks a lot Lovely ji...now i got your point...thanks a lot.

so you mean

if WDV as on 01/04/2012 is Rs. 100

then dep @ 15 % will be Rs. 7.5/- . Asset sold for Rs. 100/- .

so in P & L... Depreciation will be Rs. 7.5/- and exempt capital gain u/s 47 also will be Rs. 7.5/- and asset sold will be routed through capital a/c..

Thanks a lot....